SPP Strategy Formulation & Development 3 — Questions and Answers
Question 1: When formulating a corporate-level strategy, which of the following best represents a 'related diversification' approach?
- A software company acquiring a chain of restaurants to balance revenue streams
- A pharmaceutical company acquiring a medical device manufacturer to leverage healthcare expertise (Correct answer)
- A retailer entering real estate development to hedge against market downturns
- A bank investing in entertainment companies to diversify its portfolio
Correct answer: A pharmaceutical company acquiring a medical device manufacturer to leverage healthcare expertise
Related diversification involves expanding into businesses that share strategic fit with core operations, allowing the company to leverage existing competencies and resources.
Question 2: The concept of 'strategic fit' in merger and acquisition strategy refers to:
- The cultural compatibility between the acquirer and target company's employees
- The degree to which combining two entities creates synergies that enhance competitive advantage (Correct answer)
- The regulatory approval process required for completing the transaction
- The financial valuation methodology used to price the acquisition target
Correct answer: The degree to which combining two entities creates synergies that enhance competitive advantage
Strategic fit measures the degree to which an acquisition creates value through synergies in resources, capabilities, markets, or technologies that strengthen competitive position.
Question 3: Which planning horizon is most associated with operational planning versus strategic planning?
- Strategic: 1 year or less; Operational: 3–5 years
- Strategic: 3–5 years or longer; Operational: 1 year or less (Correct answer)
- Both planning types cover the same 2–3 year horizon
- Strategic: 6 months; Operational: 10+ years
Correct answer: Strategic: 3–5 years or longer; Operational: 1 year or less
Strategic planning typically spans 3–5 years or longer with a focus on direction-setting, while operational planning addresses near-term execution within a 1-year horizon.
Question 4: A company establishes a highly aspirational long-term goal that stretches the organization beyond its current capabilities. This concept is known as:
- Core competency
- BHAG (Big Hairy Audacious Goal)
- Strategic intent (Correct answer)
- Value proposition
Correct answer: Strategic intent
Strategic intent, introduced by Hamel and Prahalad, describes an ambitious long-term desired leadership position that directs resource allocation and capability development over time.
Question 5: In scenario planning, what is the primary purpose of developing multiple future scenarios?
- To predict which specific future will occur with the greatest probability
- To test strategic robustness against a range of possible futures and reduce uncertainty (Correct answer)
- To assign budgets to the most likely future outcomes for the next fiscal year
- To replace the traditional SWOT analysis with a more dynamic tool
Correct answer: To test strategic robustness against a range of possible futures and reduce uncertainty
Scenario planning helps organizations test strategies against multiple plausible futures, building resilience and flexibility rather than relying on a single predicted outcome.
Question 6: Which of the following best describes a 'first-mover advantage' in strategic planning?
- The benefit gained by observing competitors' mistakes before entering a market
- Competitive benefits accrued by being the first to establish a significant position in a new market (Correct answer)
- The cost savings from entering a market after infrastructure has been established
- The advantage of building brand loyalty after competitors have educated the market
Correct answer: Competitive benefits accrued by being the first to establish a significant position in a new market
First-mover advantage refers to the competitive edge a company gains by being first to enter a new market, potentially securing brand recognition, customer loyalty, and switching costs.
Question 7: A strategic planning team is evaluating whether to vertically integrate a key supplier. Which factor would most strongly support this decision?
- The supplier operates in a completely unrelated industry with no strategic overlap
- The supplier controls a critical input where disruption would severely harm competitive position (Correct answer)
- The supplier offers commoditized inputs available from multiple alternative sources
- The company lacks the management bandwidth to oversee additional operations
Correct answer: The supplier controls a critical input where disruption would severely harm competitive position
Vertical integration is most justified when a critical supplier controls scarce inputs where supply disruption would significantly harm operations and competitive advantage.
SPP Strategy Formulation & Development 3
When formulating a corporate-level strategy, which of the following best represents a 'related diversification' approach?